US Dollar Falls After Fed and Trump Rhetoric Underwhelms

The U.S. dollar fell to its lowest since mid-November against a basket of major rivals on Thursday in the wake of a Federal Reserve policy statement that disappointed investors hoping for clearer signs on rate hikes, while rhetoric from U.S. President Trump unnerved traders.

Money markets had shown a 20 percent chance of a rise in U.S. rates next month but that slipped to as little as 15 percent despite the Fed sending a broadly upbeat message on the economy. Aggressive language from Trump on Iran and a refugee deal with Australia also put the focus back on the geopolitical risks from his administration rather than the expectations of higher inflation that dominated markets’ initial thinking last year.

The dollar index, which measures the greenback against a basket of six major rivals, slumped to its lowest since Nov. 14 at 99.233 in morning trade in Europe. The euro hit an eight-week high against the dollar of $1.0828 , while the dollar slumped as much as 1 percent against the yen to 112.06 yen.

That put the dollar near Tuesday’s two-month trough against the Japanese currency of 112.04 yen.

“Yesterday’s FOMC statement wasn’t overtly hawkish as some had speculated, no obvious signals that March is a live meeting,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.

“You have the broader story around Trump’s incessant combative approach to international relations, and very little news on pro-growth, pro-business stuff like taxes and infrastructure,” he added. “That is hurting the dollar because it’s triggering people to pare back their reflation bets on the U.S.”

via Kitco

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza